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Ground Breakers: Chalice’s Julimar is a step closer, but investors are selling ruthlessly on its first hard numbers
Mining
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- Chalice shares smashed after the release of long-awaited scoping study on Gonneville nickel-copper-PGE project
- Eventually a near 2km long open pit, the mine could generate up to $10 billion in cash
- Chalice shares down around 25% in morning trade
After years of speculation, Chalice Mining (ASX:CHN) has finally delivered the first set of hard numbers around its Julimar nickel-copper-PGE project 70km north east of Perth.
Contained on farmland owned by the $2 billion ASX 200 explorer and developer, the mine has been pitched as one of a handful of new discoveries in the West which can provide the metals needed to keep pace with the growth of the electric vehicle industry.
But it has also faced opposition from some local environment groups due to its proximity to the Julimar State Forest.
To be clear the main orebody, known as Gonneville, does not encroach on the Julimar Forest. Chalice owns the whole thing outright, and MD Alex Dorsch was quick to note today there would be no impact to the forest from the mining proposal.
But it does present a unique project from an approvals perspective, due to be lodged in the first half of 2024. With a few exceptions, like the bauxite mines to Perth’s south, most large open pits in WA are located in remote climes in the Goldfields and Pilbara, out of sight, out of mind for its heavily urbanised population.
According to a scoping study released post market yesterday, Chalice’s Gonneville could be a real biggie.
At its largest possible rate of 30Mtpa it could extend to 1.9km long by 1.5km wide and 600m deep by the end of its 18-year life, producing 480,000ozpa of gold, platinum and, more prominently, palladium, 16,000tpa of nickel, 16,000tpa of copper and 1400t cobalt for free cash post tax of $9.9b.
A smaller 15Mtpa development scenario would generate 280,000ozpa 3E, 9000t nickel, 10,000t copper and 800t cobalt, spitting out $6.6b over 19 years from 2029.
It is all pitched as a green metals powerhouse. The nickel at the full 30Mtpa rate could theoretically supply 330,000 battery EVs, 1.8 million plug-in hybrids or 900,000 fuel cell cars at a carbon intensity of 10-12tCO2eq per tonne of nickel, a third to a fifth of Indonesian nickel laterites, and come in at a second quartile cost of US$160-230/oz 3E on the PGE side.
Capex will range from $1.6-2.3b, with Chalice keen to promote its 26% IRR and the number $18b as well. That’s the economic benefit it claims will flow through to the state of WA from the proposed development, which it is currently running a process to find a well-heeled partner to carry to a final investment decision in 2026.
But how did the market react?
The immediate response from the market has been aggressive, smashing Chalice by almost 25% on the market open.
Having initially surged on the shock discovery of nickel and PGEs in the previously underexplored Western Yilgarn in early 2020, its shares now sit around around 62% below the all time high of $10.12 hit in November 2021 after the release of a resource Chalice claimed as the largest nickel sulphide discovery in Australia in two decades.
There are plenty of concerns investors have with the study.
Take the price deck, for instance.
A nickel assumption of US$24,000/t is higher than today’s price, US$11,000/t for copper would be an all time high, cobalt at US$46,000/t is also above today’s rate.
US$2000/oz palladium compares to around US$1200/oz currently, while at US$1900/oz gold is near current levels though they are high by historical standards, and platinum prices of US$1000/oz are around today’s somewhat depressed levels.
Typically studies err on the conservative side to show a mining project can prosper through the cycles, though they could of course change by the time it’s in production.
With a PFS sanctioned for delivery by 2025, plenty is likely to change, with studies underway on underground developments to progress alongside the open pit and high grade intercepts at depth below the base of the 560Mt resource.
MD Alex Dorsch also claims the project has potential to see green and Western premiums for products like nickel sulphide and PGEs where Russia, China, Indonesia and South Africa respectively dominate much of the supply chain.
“Gonneville has the potential to deliver a large suite of metals which are essential to global decarbonisation and urbanisation. Without the development of new strategic projects such as this, the world is forecast to fall short of net-zero ambitions which rely on the rapid deployment of clean energy and electrification technologies,” he said.
“At the same time, Gonneville also helps address the dominance which Russia, China, South Africa and Indonesia currently have on the supply of these critical metals by becoming a new tier-1 scale independent producer in the Western world.
“Importantly, the Study shows that we have the opportunity to do this while generating both exceptional financial returns for our shareholders and delivering social and economic benefits for the surrounding region, the State and the nation over decades.
“The Study also establishes Gonneville’s world-class sustainability metrics, with a low carbon footprint and a development plan which is deliberately constrained to Chalice-owned farmland.
“Gonneville is scoped to become a modern mine that can co-exist with the local environment and our science based Biodiversity Strategy, which is embedded from the outset ensures no net-loss of habitat or species.”
